# Fiscal Cliff

Discussion in 'Politics' started by Buddha12, Apr 19, 2012.

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## Will the US go over the Fiscal Cliff?

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1. ### joepistoleDeacon BluesValued Senior Member

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Really, seriously, you have not been paying attention. Either that or you are just incredibly dense or lying. Show me where I said, I didn’t see inflation. I never said that. In 2009 we didn’t have inflation. We had deflation. That is why the price of gasoline went from over $4/gallon to a$1 and change.

Since 2010 we have had a very moderate inflation rate. I also said that inflation was controllable with monetary policy. Monetary policy (i.e. The Fed) can increase the rate of inflation and decrease the rate of inflation. It’s not all up as you and Bill T seem to think.

Facts are though things for you Michael. We have been monetizing the debt for decades and have yet to see the Weimer and Zimbabwe hyperinflation. That is a cold hard fact Michael, one of the many you like to ignore.

I find it humorous and ironic to hear you worry about the oppressed little guy. You are the guy who wants to let the “corporatists” do anything they want whenever they want. And you are the guy who wants to cause a depression to increase the value of the dollar.

You need a serious reality check Michael.

3. ### Michael歌舞伎Valued Senior Member

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Your comparison isn't fair as in obviously these amenities weren't invented.

But, to own your average white goods and have electricity in the 1950s was perfectly normal in my state MI. My grandfathers house is small three bedroom but still perfectly fine. Many owned speed boats, cars, motorcycles, phone, tv, radio, etc.... (Basically your internet and iPhones of the 1950s). This doesnt even consider the HUGE gains in productivity made over the last 80 years. These also hide the true cost of monetizing the debt. I think BillyT once made to point you could open a Sears catalog to get an idea of what middle America was buying. This lifestyle would require two people working to maintain today. That's the hidden cost of monetizing the debt.

But, this will become evident in the years to come as the standard of living continues to drop in the USA. Our birth rate just started to dip below replacement - reminds me of debt ridden Japan.

Don't be surprised to see more war and even less civil liberties if you can imagine that.

5. ### Michael歌舞伎Valued Senior Member

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I explained that yes you haven't seen A Wiener Republic hyperinflation event. What we've instead seen is a slow death of our way of life over the last 80 years. Much worse IMO. How do you explain given the HUGE productivity gains, that the standard of living is LOWER not higher? We're talking about 100% increase in productivity. Is THAT reflected in life? Why is it then that mothers have to work and not spend time raising children? That \$300 iPhone is not THAT pricey. PCs and electronics are probably the one thing that HAS come down in price as production ramped up.

Oh, yeah, I forgot, for you life couldn't be better. This generational debt is great. And gee, all these low skilled service jobs at Walmart as a Greeter. Just wonderful.

While BillyT sees a hyperinflation, I OTOH just see a continued devaluation of our standard of living to a new lower level of normal. When you hear of families where both mother and father work full time and with kids working half time to make ends meet, try and recall this conversation.

Last edited: Jan 5, 2013

7. ### Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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No I made a highly qualified claim. Stating that creation of "thin air money" was essential and had been correctly done for many decades in the US, but not in the last few years. One of the main problems with gold as your currency is that the production of gold is unrelated to the needs of the economy for expansion of the currency. (Can be too much or too little.) For long term stability, the currency MUST expand at approximately the rate of population growth or the GDP, which ever is larger. Here is my post 119 stating clearly that QUALIFICATION:
Will you not admit that creating thin air money for years (as the FED announced with QE-infinity) AT 8 TO 10 TIMES THE STABLE RATE of needed currency expansion ultimately leads to run-away inflation?
(Last paragraph of post 126 gives a math proof that Fed buying 85 Billion of Treasury bonds each month with thin air money, with no end in sight, is currency creation at more than 8 times the stable rate.)

I admit that there can be little immediate inflation, if the newly made money just sits in bank vaults, but it will not do that forever earning the bank no interest. When it starts to circulate, there will be at first only modest inflation, but as public learns that it will cost more next month to say buy a can of beans, they will buy now rather than later. The velocity of money AND the volume in circulation BOTH rapidly increase. I.e. expectation of increasing rate of inflation is a self-fulfilling feed back.

My post 119, quoted above, makes clear the difference between healthy, needed, currency expansion and excessive expansion that leads to run-away inflation.
I don´t think that now bold part is true. Please give an example of how the Fed can remove some of the thin air money it has already created that is now, say owned by Citi Bank, WITHOUT CREATING EVEN MORE in the final analysis. AFAIK, the ONLY plan the Fed has for removing money from say Citi is to offer higher than market interest to Citi, if they deposit the thin air money in their vault as "excess reserve requirement funds" with the Fed. To get the ability to do this, (pay interest on excess deposits) the Fed asked and got authorization from Congress a couple of years ago.

That is just a "kick the can down the road" effort, as later, when Citi wants to zero its excess deposits with the Fed, it will have more money (the higher than market interest) the Fed paid to induce Citi to make the initial excess (of reserve requirements) depots. So again, please tell me how the Fed can DESTROY the thin air money it created when it starts to circulate and makes rapidly accelerating inflation (if not destroyed by the Fed.)

Last edited by a moderator: Jan 5, 2013
8. ### joepistoleDeacon BluesValued Senior Member

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22,910
Here is the problem with your assessment, life is better today than it was 80 years ago. Eighty years ago we were in the midst of The Great Depression. Eighty years ago soup lines were common. Eighty years ago, rural America didn’t have electricity, much less indoor plumbing. Eighty years ago, there were no antibiotics, no penicillin, no sulfa drugs. There was no interstate road system. There were no iPhones. Cellular phones hadn’t been invented. Most Americans didn't have phones and if they did, they didn't have privacy while using their phones. They shared a communal phone line, a shared line (i.e. the partyline). In 1940 fewer farmers had telephone lines than in 1920. There were no video games. Despite being commercially available in the late 1920’s most people didn’t have TV’s eighty years ago. And if you did have a TV, even in the 50’s you were limited to viewing one or two channels versus today where even lower income homes usually have TVs with hundreds of channels and cell phones too. Eighty years ago and even 50 years ago doing the laundry wasn't as easy as it is today. Much of the laundry had to be done by hand. Whereas today it's as easy as throwing it in the washing machine, adding some detergent, and flipping a switch or pushing a button.

Over the course of the last 80 years US life expectancy has gone from 57 years to 78 years. Gee that just doesn’t fit with the tale of woe you are trying to paint. Back in the 1930’s and in earlier years women were not sitting on their duffs doing nothing in the home. Both parents were working. Back in the 50’s both parents were working just as they have always done, just as they do today. Now with advances in commerce and home maintenance technologies women have exited the home and begun working outside the home. So while most women today are working outside the home, it doesn’t mean that their mothers were not working when they manually cleaned rugs and washed and repaired clothing or canned foods on hot summer days.

Most people now have central heating and air conditioning. They didn’t 80 or even 40 years ago. Cars are much more convenient, safe and reliable. Even the simple things like window washers didn’t exist in cars. Roads are safer; prescription drugs are more available and safer. Food is more available and safer. Information is more available. Healthcare is safer and more effective. Pollution is down. We are no longer polluting our lands, air and water as we were even 40 years ago. All sorts of problems are safer, lead is no longer present in our fuels or in our paints or on toys for our children.

Our people are more productive and as a result they have more disposable income. The American consumer today has more consumer goods and services than at any time in our history (e.g. IPods, IPhones, personal computers, computer tablets, cell phones, wired phones, faxes, automobiles, CDs, radios, TVs, cable TV, satellite TV, Recreational vehicles, etc.). Just tune into any of the many home shopping networks, which by the way didn’t exist 20 years ago.

So your woeful story of a “continued devalued standard of living” just doesn’t hold up to even the most cursory review. Things have gotten better, much better over the course of the last 80 years for the average Joe’s and Jane’s’ of this nation.

Last edited: Jan 6, 2013
9. ### Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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No, not “continued.” Joe is correct the living standards of typical Americans have improved at a rate never even approached before in human history; however, hyperinflation, should it occur, will reverse these gains. For example, a retired diabetic’s Grand father did not have insulin, may have gone blind etc. because of that fact, etc. If hyperinflation occurs he will not have insulin either as its price will be dozen of times more than his value gutted saving will buy.

Hyper inflation is second only to being invaded by an enemy in its power to destroy living standards. - In truth it is an irresistible, undefeatable enemy. That is why the US must stop living beyond its means by borrowing trillions annually it does not have anyway to pay back except via destruction of the value of the dollar.

Ask any one who lived thru Zimbabwe´s or the Wiener Republic hyperinflation and found that their total annual salary of five years earlier would not buy a loaf of bread.

Last edited by a moderator: Jan 6, 2013
10. ### Aqueous Idflat Earth skepticValued Senior Member

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In that case, no harm done, right?
Is it a requirement or not? Once the funds are allocated to reserves, how does your hypothetical problem ever arise? And aren't the conditions that would induce a "dipping into the reserves" be exactly the kind of crisis the Fed is protecting against by implementing this policy?

Also: why would it ever be difficult for the Fed to downsize the money supply? Also: you seem think the Fed doesn't have countermeasures to reverse a particular effect. Why assume that? It seems a highly cynical view of the capability to manage and control systems from the folks who have the best chance of succeeding. Why doubt them?

11. ### Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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Your question is not clear to me, but the "problem" arises when the Trillions of funds the Fed has created with very little effect on the economy (essentially none on the unemployment rate, which mainly decreases when people stop looking for work) starts to circulate in the economy.

My describing them as "sitting in vaults" is to make point clear. In fact only a very tiny fraction of the new thin air money does that. Most of it is returned to the US Treasury by owners buying bonds - A large part of why the interest rates are historically low is this artificial demand for bonds. I.e. Owners of thin air money are helping the Fed keep interest rates depressed.
I am only asking for at least one way that the Fed can DESTROY even one privately owned dollar of the thin air money it has created, say a dollar owned by Citi Bank, that does not create more in total later on. I.e. is not just kicking the can down the road AND making the problem of excess money existing worse in the end.

I asked Joepistole to give an example of how the fed can destroy money as he said it could do that as easily as it created the money, but thus far Joe has not suggested any way the Fed can destroy money some one else owns. I usually put the money the Fed owns (including the "toxic trash" mortgages it got from Freddy & Fanny, and banks. etc. in quotes - i.e. call it the fed´s "assets" as they are just paper promises - not owner ship of land or mineral ores etc. Thus, one day, I guess it is possible that the Fed could announce that they destroyed 3 trillion of "assets" they owned in a big bond fire* last night.

I ask you too, how can the Fed permanently destroy even one dollar that Citi bank owns? I am not assuming anything - only asking how can Fed destroy money someone or corporation owns as easily as they created it from thin air?

* that must have happen once long ago for some "central bank" when starting all over again with a new currency after period of hyperinflation - Probably why we call it a BOND fire.

12. ### billvonValued Senior Member

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20,575
?? And the former way of life has not been un-invented. You can choose to live like that if you like. Or you can choose to live a different life and pay for it.

Yep. But not in the 1940's, which is the time period I was talking about. Cars were not yet the most common mode of transportation - only 20% of Americans even owned one. Rural electrification was just getting started; in 1940 less than 50% of farms had electricity at all.

Now, you want to live to 1950's standards? Great! Get out your wallet.

No, it doesn't. Do you want to avail yourself of all these gains? Great! You'll pay for it. Want to get an apartment close to where you work, walk to work and shopping, cook all your food? You can do that too and spend very little.

Yes, you can always choose a lifestyle that requires both people to work. Or you can choose a cheaper one. Up to you.

Too many people here think that being an American entitles you to a cheap big screen TV, good shows on basic cable, a cheap car for your traffic-free commute, a McMansion with a view and a fast Internet connection. It doesn't. You can choose that life if you want - or you can choose something cheaper. It's up to you.

Good thing we're a nation of immigrants, then.

13. ### Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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Positions are hardening already on the debt ceiling, taxes increase, spending cuts etc. (Fiscal Cliff, round two):

14. ### Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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The real pain begins in early March 2013 when Treasury runs out of accounting tricks.
*Never will happen - Congress´s salaries will be paid.

Last edited by a moderator: Jan 8, 2013
15. ### madanthonywayneMorning in AmericaRegistered Senior Member

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12,461
Not to worry, the Democrats have a plan:

The Trillion Dollar Coin!:

Hell, maybe they can just send one of those coins to China to pay off our outstanding debt! If they mint 16 of them we'll have the entire debt paid off. Problem solved!

16. ### billvonValued Senior Member

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I like it! All the stupidity of the republicans but actually solves a problem.

17. ### joepistoleDeacon BluesValued Senior Member

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The trillion dollar coin is certainly better than the Republican plan, an intentional default on the nation’s obligations. Whatever possesses Republicans to think that not paying the very debts authorized by Republican Congresses is a good idea and somehow fiscally responsible is beyond me. Perhaps that is the same kind of crazy thinking that caused those very same Republicans to think it was a good idea to rack up 10 trillion dollars of the nation’s 16 trillion dollar debt as they did with the laws they passed when they controlled all organs of government (2001-2006) and the presidency until 2008.

18. ### joepistoleDeacon BluesValued Senior Member

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That is not true Billy T. We have had this discussion many times over the course of many years. I get a little tired of endlessly repeating myself. But I will do it once again for your edification. The Federal Reserve can expand the nation’s money supply by lowering reserve requirements or buying assets like US Treasuries, CDO’s, etc. as it has been doing. It can easily reduce the money supply by doing the exact opposite, increasing bank reserve requirements and selling debt obligations, the very debt obligations it has been buying. That is how the Fed takes money out of circulation.

http://www.investopedia.com/articles/08/fight-recession.asp#axzz2HaoxSkcP

Additionally there is no reason for the Fed to destroy dollars unless those dollars are damaged by wear. It is a silly notion that the Fed must destroy dollars. It just needs to put those dollars into circulation or take them out of circulation, depending on the economic conditions.

19. ### madanthonywayneMorning in AmericaRegistered Senior Member

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You keep saying that, but it's not true. Refusing to raise the debt ceiling absolutely does not mean we couldn't pay our debts, it simply means that we could not incur more debts. The US government takes in about 2.5 trillion per year, debt service is currently only about 220 billion per year. So we could easily continue to pay all of our debts and still have about 2.3 trillion to blow on other stuff.
More mendacious propaganda. The national debt thru 2006 was 8.5 trillion, of which a "mere" 2.7 trillion was racked up when Republicans controlled all organs of government (2001-2006).

Shall we compare that with deficit spending under Democratic Stewardship? In the short 2 year period in which the Democrats enjoyed control of all organs of government, they racked up about 3.5 trillion in debt. Furthermore, Obama is projected to have more than doubled the national debt by the end of his second term.

To put that in perspective, the debt incurred by Obama alone will equal or exceed that of all previous presidents combined including Bush.

20. ### Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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When was debt servicing only 220 billion? In the last half year of so, the interest required to sell 10 Year bonds has been climbing - from a low of about 1.7% to nearly 2% now. Almost a 12% increase in cost of servicing the old debt with new issued bonds, Plus at least one major holder (China), is wanting to be paid (not roll their bonds) as they mature.

Also it is very distorted to speak of not going into default (that´s what "servicing the debt" is) as "continung to pay all our debts." We are only paying the maturing bonds that holders will not roll and borrowing at least a trillion annually more to do this and met other expenses Congress has authorized.

21. ### Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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And I have several times pointed out to you that FED (or treasury) selling bonds makes no permanent reduction in the money supply. - It is just kicking the can down the road, which actually INCREASES THE MONEY SUPPLY when those bonds mature - Money supply GROWS by the interest paid when principle is returned.

Increasing the reserve requires can slow the growth of the money supply, but does not remover even one dollar of the old, already existing printing press dollars. In my last comments on this, I asked how can the FED get one existing dollar, say owned by me or citi bank to be destroyed.
Please answer as DESTRUCTION of dollars is what you claim the Fed can easily do.

The true answer is that the Fed cannot confiscate my dollar and destroy it, but they sure can and are destroying the purchasing power of my dollar - all in the name of making the US economy stronger. It has not happen in four years of consistent printing press / thin air money, policy, but the Fed, unlike a five year old, does not learn from experience / history - it is guided by theory.

22. ### madanthonywayneMorning in AmericaRegistered Senior Member

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What figure do you have? Here's another source:

http://www.nhregister.com/articles/2012/09/03/news/doc5044f5b73e81b155309677.txt

23. ### joepistoleDeacon BluesValued Senior Member

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I KEEP SAYING IT BECAUSE IT IS TRUE. You are deep into that alternate reality inhabited by the likes of Michelle Bachman and the famous Mr. 999. Every month the Treasury must pay maturing obligations and issue new debt just to maintain the existing level of debt. We have already reached the debt ceiling and the Treasury estimates default will occur between mid-February and early March if the debt ceiling is not raised.

http://thehill.com/blogs/on-the-money/budget/275947-debt-ceiling-cliff-coming-feb-15-experts-say

http://money.cnn.com/2012/12/31/news/economy/debt-ceiling/index.html

One of the many things you are forgetting or ignoring is that each month the Treasury must buy maturing debt and reissue it just to maintain the existing level of debt. The debt service is just the interest. You are ignoring the maturing principal that must be paid every month and reissued just to maintain the current level of debt – not to mention paying existing expenses.

Treasury Secretary Geithner has already sent a letter to Congress notifying Congress that a US debt default is imminent unless Congress takes action to remedy the problem.

http://www.treasury.gov/initiatives/Pages/debtlimit.aspx

Sticking your head in the sand, covering your ears and endlessly repeating Republican mantras will not change reality. The US has already reached its debt level and is now using extraordinary measures to prevent a default and will begin defaulting on its obligations if Congress doesn’t fix the problem by mid-February or early March. Congress has been given official notice of an impending US default by the US Treasury. That is the truth; that is reality. You, Bachman and your fellow Republicans can continue to ignore it as you guys like to do. But it won’t change reality.

No, it is more of that reality which you Republicans like to avoid. The laws that created our debt, the two unfunded and bungled wars which have lasted more than a decade and the huge pork riddled entitlement expansions, the huge unfunded tax cuts, and the reckless deregulation which led to an economy in ruins and all the related expenses are the Republican debt gifts to the nation that have kept on giving long after those Republican Congresses expired. The hard cold truth for you Republicans is that the very debt you like to wail about was created by the very same Republican officials whom you elected and who are now refusing to now pay those debts.

To put that into more simple terms, all the debt the US government has incurred since President Obama became POTUS, was due to legislation passed into law by Republican Congresses which preceded President Obama and when Republicans controlled all branches of the Federal government.

President Obama to his credit, even with persistent and vociferous Republican opposition, has been steadily undoing all the Republican legislation that created the debt problem. He has made significant changes in healthcare. He has changed Medicare reimbursements. Instead of paying for the number of procedures, Medicare payments are now based on outcomes which should dramatically reduce Medicare costs in the coming decades. President Obama has honorably ended one war and will honorably end the remaining war next year. And President Obama has reregulated the banks and restored the nation’s economy – all in 4 years.

I am sure you and your brothers and sisters over at Fox News will continue to engage in these “sleight of hand” deceptions. But reality eventually bites.